Mark to review this question st the end of the man Villiams is the owner-manager of Northern Lights Leasing Company. The company specializes in leasing out equipment to the manulacturing industry The equipment mostn demanis soatkem S'S new CAD computer system, which costs $9,500,000. This equipment qualifies for a 32% CCA rate, it will last for nine years, and it will have a salvage value or $550, hern Lights's bank, the Canadian New Bank, charges the company a borrowing rate of 11%. Northern Lights's, marginal corporate lax rate is 42%. are the financial manager for Northern Lights Company. The Prince Company has approached you to lease them the CAD computer system. You provide them with the folownglassetems im of lease: nine years ease payments: $1,950,000 ayment due: Beginning of each year irthern Lights will be responsible for maintenance and upkeep of the system, which adds up to $10,250 per year Assume that maintenance costs are pad at tho end of exch your a. What is Northern Lights's after-tax borrowing cost? ( 3 marks) b. What is Northern Lights's after-tax lease revenue? ( 3 marks) c. What is the present value of the CCA tax shields available to Northern Lights? (12 marks) d. What is the present value of Northern Lights's after-tax lease revenues? (Remember that the lease revenues will arrive at the beginning of each year.) (10 marks) e. What is the Net Advantage from Leasing from Northern Lights's point of view? ( 16 marks) f. What is the Net Advantage from Leasing from Prince's (lessee) point of view? Assume that Prince's marginal tax rate is also 42% Provide the rationale loryour arsmer (3manis) g. What is the minimum lease payment that Northern Lights must charge on the equipment? (14 marks) asks you, "How is it that we are still in business?" Explain to Ms. Williams how this paradox can be resolved (5 marks) Mark to review this question st the end of the man Villiams is the owner-manager of Northern Lights Leasing Company. The company specializes in leasing out equipment to the manulacturing industry The equipment mostn demanis soatkem S'S new CAD computer system, which costs $9,500,000. This equipment qualifies for a 32% CCA rate, it will last for nine years, and it will have a salvage value or $550, hern Lights's bank, the Canadian New Bank, charges the company a borrowing rate of 11%. Northern Lights's, marginal corporate lax rate is 42%. are the financial manager for Northern Lights Company. The Prince Company has approached you to lease them the CAD computer system. You provide them with the folownglassetems im of lease: nine years ease payments: $1,950,000 ayment due: Beginning of each year irthern Lights will be responsible for maintenance and upkeep of the system, which adds up to $10,250 per year Assume that maintenance costs are pad at tho end of exch your a. What is Northern Lights's after-tax borrowing cost? ( 3 marks) b. What is Northern Lights's after-tax lease revenue? ( 3 marks) c. What is the present value of the CCA tax shields available to Northern Lights? (12 marks) d. What is the present value of Northern Lights's after-tax lease revenues? (Remember that the lease revenues will arrive at the beginning of each year.) (10 marks) e. What is the Net Advantage from Leasing from Northern Lights's point of view? ( 16 marks) f. What is the Net Advantage from Leasing from Prince's (lessee) point of view? Assume that Prince's marginal tax rate is also 42% Provide the rationale loryour arsmer (3manis) g. What is the minimum lease payment that Northern Lights must charge on the equipment? (14 marks) asks you, "How is it that we are still in business?" Explain to Ms. Williams how this paradox can be resolved
